Thursday, August 14, 2014

How to make Snowballing your finances a way of life!

Everyone knows that snowballing works for paying off your debts, and if you read the last post on this topic, you learned about the best ways to prepare your finances to make snowballing more effective. Sometimes, if you don’t prep for it, you might just be taking a shot in the dark, and may spend years longer than necessary paying off debts. Let’s say, however, that you’ve got yourself all ready to go. You’re committed to what you’re doing and want it more than you’ve wanted anything. Well, how to proceed? Here’s how!

Take a look at all your loans and determine which ones you want to pay off first. Most people choose high-interest debts, but there’s something to be said for paying off any loans that were made to you by family, too. After all, few things put a hamper on Christmas quicker than Uncle Lou staring you down about that thousand dollars you owe him while you open another gift you feel bad about! Put the loans in order of the way you’d like to pay them off, leaving the lowest interest rate student loans for last. Surprisingly, those will go the quickest anyway if you follow the program to the letter!

With them in order, determine the minimum payment amount you can make to keep your credit bright and shiny. Whatever you do, don’t skip payments! Now, sometimes on car loans or mortgages, you might be able to skip a payment and have it tacked onto the end of your loan. This is a great way to pay down high-interest loans if you can, since those tend to be lower interest loans, anyway. It’s worthwhile to ask your bank or mortgage representative if you’re unsure. Another great way to skip a payment (or three,) is to refinance your mortgage. You might just end up with a lower interest rate, pay less on your loan over the long term, and have an extra couple of thousand dollars you can wave at those credit card debts!

So, that out of the way, look into setting up automatic payments on debts and bills that you might be tempted to throw a few extra dollars at every month. Snowballing is essentially pouring as much as possible into one loan or debt to get it off your books, so don’t cheat! Set up auto payments through your checking account for your monthly bills according to your budget, and then make sure you budget in a few dollars for yourself for an allowance. You’d be surprised how far $20 per week can go if you don’t have your debit card in your pocket. What’s that you say? It’s still there? Nope. Take it out. You’re going to have to plan for gasoline and groceries, so don’t tote that thing around, ready and willing to drop $40 on lunch with the guys before you even have a chance to think about it!

With automatic payments set up, it’s time to start cutting away at that loan you really want to get started on. Rather than making minimum payments, sock it with every extra penny you can scrounge up. Have an extra $300 in the budget? Don’t put it in 401-k, and don’t put it in savings. If you aren’t going to have to use it for a necessity, then put it toward that loan, and don’t balk at it.

Once that loan is paid off, the idea of snowballing is that you take that amount and add it to whatever you’re paying on the next loan. For instance, if you were paying an extra $300 on the first loan, making a total payment of $350, and the next loan has a $50 minimum payment, then you begin paying $400 on the next loan rather than $350. If you’ve got six loans to pay off, (assuming the minimum payment on each is $50, then you’ll end up (in this example,) paying a total of $600 per month on the last loan. Now, let’s say that loan is a $15,000 student loan, and you’ll have that sucker paid off at that rate in just two years, instead of the usual 30+ that some people these days end up paying for their student loans! If you’re ready to go, then get cracking! There’s no time like the present!